Athenahealth drops but Nasdaq’s restriction may stem further losses

By Russ Britt

David Einhorn’s scathing attack on Athenahealth late Monday took its toll on the health information-technology company when the market opened on Tuesday, but a move by securities officials might have prevented further losses for the stock.

The after-hours drop came after Einhorn, who took a short position in Athenahealth, spoke at the Ira Sohn conference in New York, blasting the company for being “caught up in a bubble” and saying its shares were overpriced. He questioned claims by the company’s chief executive Jonathan Bush — nephew and cousin to former presidents George H.W. Bush and George W. Bush, respectively — that the company is a cloud-based servicer.

Nasdaq issued a short-sale restriction, which may have prevented a steeper drop once the market opened on Tuesday.

Then, Athenahealth officials issued a statement in defense of the company Tuesday morning, saying: “For more than a decade Athenahealth has been one of the nation’s fastest growing health care [information-technology] companies because of its unique business model and ability to drive unmatched value for health care providers. Health care is desperate for disruptive technologies and athenahealth is one of the few bright spots of innovation.”

The statement goes on to say: “We remain fully confident in our business model and growth projections, and are as focused as ever on delivering on our mission to be caregivers’ most trusted service.”

A number of analysts came to the company’s rescue as well. Sterne Agee’s Greg T. Bolan said he was keeping his “buy” rating on Athenahealth shares with a price target of $195.

Bloomberg

Athenahealth CEO Jonathan Bush

“While value is in the eye of the beholder, we respectfully disagree with the assessment that Athenahealth shares are overvalued. In fact, we believe Athenahealth shares are quite undervalued relative to its peers,” Bolan said in a note to clients. “We can think of no other company in our universe that has and will continue to generate 25-30% [year-to-year] revenue growth.”

Athenahealth rose to prominence in early 2009 after President Barack Obama signed into law a massive economic stimulus bill that included $30 billion in spending to help the health-care industry digitize its medical records. It and several other companies have profited from the program, but Athenahealth shares have soared like no other, topping $200 just earlier this year.

There is some concern that companies like Athenahealth will hit a wall once spending on the program declines and more health-care providers complete their conversion to computerized health records. Leerink Research’s David Larsen says that isn’t the case.

“We remain positive on Athenahealth, and our checks indicate that although we’re moving through the stimulus program, there is still a significant professional [electronic medical records] replacement market opportunity,” he wrote in a note. “The [stimulus] may have been signed into law in early 2009, but health-care reform — in our view — will last for decades.”

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